Plato Partnership at TradeTech 2018 – What does the new liquidity landscape look like given European regulations and how will it impact your business?

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Thursday, 26th April 2018. 0905 – 0945.

Featuring a panel of representatives from Goldman Sachs, SIX Swiss Exchange and ITG, this panel gave a top-line view about the current landscape and how things have changed since January. Alongside a willingness to never hear the “M-word” after June, firms were also keen to assess moves to multi-asset, the success of periodics, Systematic Internalisers (SIs) and the interaction between banks and brokers.

Key Takeaways

The market and industry, both buy- and sell-side, prepared for and understand how MiFID II would impact them very well from a trading perspective. The shift is where firms are trading now: large in scale venues and periodic auctions.

There’s a leaning towards multi-asset trading, and automation of trade flow from a cost perspective is a main driving factor. The new regulatory regime supports streamlining of order flow, operational and compliance functions.

Key Questions and Quotes

On Systematic Internalisers (SIs):

“The SI regime raises a lot of questions about the provision of liquidity. This is going to be the real game-changer.”

“On the SI front, there is a polarising view that clients are taking. I was surprised by the number of clients that asked for firms not to interact with Sis. There is a large discrepancy between banks in terms of Sis – especially when it comes with opt-ins – as many are still awaiting data before they can take a definite position.”

From an exchange point of view – do you see any changes in the market?

“No. The volumes on our market remain the same – if anything, we’re growing market share. We’ve had a minor uptick, but that’s an evolutionary trend. It’s not as the regulator intended – people haven’t moved to lit auctions.”

“I really hope that periodic auctions get left alone by the regulators – they perform very well, better than dark pools in fact. There are some problems though: clients that have large orders but need to trade gradually, for instance, might not find this the most useful. I’d encourage people to learn more about periodic auctions and add this to your processes, rather than just waiting for blocks.”

“People haven’t understood everything about the landscape – especially between capped and uncapped auctions. A few people have mentioned price performance, and people will begin dealing with these market places more as people prioritise the quality of the liquidity.”

“Having spoken to our clients, there is a clear move towards multi-asset trading. Consolidating flows to single platforms increases reporting efficiencies. This move towards multi-asset is up against a lot of technological problems. We have yet to see a full front-to-back multi-asset offering.”

How will this move to multi-asset impact market interaction?

“Everyone is recognising that our market is becoming more complicated. The levels of investment from connectivity, analysis, and development points of view are all going up. This impacts on a firm’s costs, leading many to ask if they have the scale to achieve the move to multi-asset.”

“Everybody always talks about consolidation. From a banking perspective, this added complexity means it costs a lot of money to put in place. The venues have changed as well – and even at firms like ours – which optimise clearing, settlement, etc. at every level – there’s margin pressure.”

“Electronic execution has become a big player game. The barriers for entry from an electronic perspective have increased – leading to a larger amount of outsourcing. Anyone looking to get into this space from a regional perspective is going to have a challenge.”

What is your view on how the banks are dealing with the buy-side? Did they react as expected?

“The largest buyside houses will always lead the space. Partnering with leading buy-side houses does give you an advantage – which isn’t a surprise – but there’s a lot of ambiguity around what will happen with SIs.”

“A lot of firms had implemented changes to how they approach the market. Unbundling has been the biggest driver of change to the block markets this year.”

What will be we be talking about further down the line?

“From a regulatory point of view, things would have stabilised. But with new reports needed there will be a flood of unstructured data – but will anyone review it?”